Portfolio / Asset / Fund Management & Investment Banking Blog for MBAs: January 2013

Saturday, January 5, 2013

Buy Side Analysts versus Sell Side Analysts

From the links:

Will summarize the points from the links above soon. However, I wanted the readers to start thinking about this. The difference between the BUY SIDE and the SELL SIDE.

Cheers,
Gerry.

Thursday, January 3, 2013

10 Steps To A Career In Hedge Funds

From the link: http://www.investopedia.com/articles/financialcareers/08/hedge-fund-career.asp

Step 1. Be Sure You Really Want To Work For A Hedge Fund
Step 2. Become A Student Of The Hedge Fund IndustryIf working for a hedge fund is your goal, then create daily habits that work towards that goal. Examples are subscribing to free hedge fund newsletters, reading two to three chapters in a book on hedge funds each day or joining a local hedge fund association or club. To get a feel for where you might fit within the industry you need to learn the basics:

Who are the major players in the industry?
What terms/definitions are important to know?
Which strategies hedge fund managers commonly employ?

Use The Three-Circles Strategy
Step 4. Identify Hedge Fund CareerMentors
Step 5. Complete One or More Internships
Step 6. Develop Your Unique Value Proposition
Now that you have read articles, books and newsletters on hedge funds, completed a few internships and are developing mentoring relationships, it is time to figure out where you fit into the industry.

What type of job would you like?
What type of responsibilities are you seeking?

This is similar to the three-circles strategy, except now you need to take more definite actions towards deciding what role you will fill within the hedge fund industry. For example, if you want to be an emerging markets analyst, write a few white papers on emerging market investment analysis, or specialize your knowledge in one area by really digging in deep, say by interviewing at 10 emerging market funds and reading five well-researched books on the subject.

Don't be generic; be unique and find something you are passionate about. Define a niche and become very knowledgeable in that area compared to the average investment professional. Be careful not to let your knowledge go to your head - coming off as too proud or arrogant can definitely make it hard to get hired or promoted.

Step 7. Hedge Fund Job Tips
Each hedge fund is different, but across the industry there is a set of typical characteristics and skills that many hedge fund employers look for. Here are some of them:

Quantitative experience and abilities - How much money did you personally bring in to the firm or make for the last firm you worked for?
Education - Ivy league, MBA, quant-focused PhD
Signs of being loyal, passionate and humble
Something extra, such as PR expertise, asset gathering ability or an information advantage
CFA, CAIA or Chartered Hedge Fund Associate (CHA) designations
High-quality names from your last few hedge fund jobs or large wire house experience
A stomach for a high commission/bonus compensation structure

(Learn more about professional designations in our articles CPA, CFA Or CFP® - Pick Your Abbreviation Carefully and What Does "CFA" Mean?)

Step 8. Land The Unadvertised Hedge Fund Job One way of finding unadvertised job openings is by cold-calling companies and firms from online Chamber of Commerce listings, industry directories or associations. In the hedge fund industry this could be done by networking through the Hedge Fund Group (HFG), Hedge Fund Association (HFA), HedgeWorld Service Provider Directory or your local CFA society.

Informational interviews can be a great way to land positions offering great training, experience and pay, and will be more relevant for you than a generic advertising. If you approach a small or fast-growing firm and show a true passion, commitment and confidence in working for them, a position can often be molded around your skill set. As a result, your job has much more potential to be a great fit with your strengths and desires.

A Specialized ApproachTake this approach to searching for a position in the hedge fund industry: Meet with four prime brokerage firms, two administrators, and 20 hedge fund analysts and portfolio managers. Explain who you are, and ask if you can treat them to coffee to learn more about their business. If you learn enough about their business, they will in turn ask what you are looking for and how they might be able to help you achieve your goals. When the meeting ends, ask for the names of two or three additional individuals who might be able to meet with you and watch your network grow.

Step 9. Consider Hedge Fund Service Provider Jobs
While some service provider jobs may seem less glorious than working directly for a hedge fund, there are great career opportunities for someone who is a very experienced prime brokerage, risk management or hedge fund administration. These types of positions expose you to a large number of individual hedge fund managers who might decide to hire you away at some point for your specialized expertise or relationships. Prime brokerage jobs in particular can be a training ground for fund-of-funds marketing jobs and third-party marketing careers. (Read Fund Of Funds - High Society For The Little Guy and Private Equity Opens Up For The Little Investor to learn more.)

Step 10. Apply To Hedge Fund Jobs
If you have worked through the previous nine steps, you now hopefully have a rough idea of what type of hedge fund strategy or service provider group you may want to work for. There are very few recruiters who will work with someone who has less than three years' experience working directly within the hedge fund industry. Many professionals successfully use experience from other industries to segue into the world of hedge funds, but recruiters usually will not work with this type of a placement candidate. Your best bets for getting that elusive placement are:

the informational interview method above
connecting with hedge fund professionals who graduated from your school
joining the Hedge Fund Group (HFG)
earning your CFA, CAIA or CHA designation
attending hedge fund conferences to connect with professionals

If you get a chance to apply directly to a hedge fund, make sure you make the short list by following up with a phone call and asking to meet a few days after submitting your resume.

ConclusionMost hedge funds want individuals who are hungry, humble and smart. If you keep this in mind while moving through the 10-step plan above, you should have a great chance of getting your first hedge fund job and beginning a successful hedge fund career. Good luck!

Inspiration from George Soros: Charman, Soros Fund Management

From the link: http://en.wikipedia.org/wiki/George_Soros

In 2006, Alvin Shuster, former foreign editor of the Los Angeles Times, asked Soros:
"How does one go from an immigrant to a financier? ... When did you realize that you knew how to make money?"

George Soros replied
"Well, I had a variety of jobs and I ended up selling fancy goods on the sea side, souvenir shops, and I thought, that's really not what I was cut out to do. So, I wrote to every managing director in every merchant bank in London, got just one or two replies, and eventually that's how I got a job in a merchant bank." That job was an entry-level position in Singer & Friedlander.

Shareholder Activism or Activist Shareholder

From the link: http://en.wikipedia.org/wiki/Shareholder_activism

An activist shareholder uses an equity stake in a corporation to put public pressure on its management. Shareholder activism can take any of several forms: proxy battles, publicity campaigns, shareholder resolutions, litigation, and negotiations with management.

Will summarize soon.

Gerry.

How to Start a Hedge Fund?

From the links:

http://www.lifeonthebuyside.com/start-a-hedge-fund/

What are the steps to follow?

What's your investment strategy?
Establish your infrastructure
Attract capital

Hedge Fund job better than an Investment Banking job? Read the article below

From the link: http://nymag.com/nymetro/news/bizfinance/finance/features/10426/

“Investment bankers?” says one hedge-fund guy. “Their lives are miserable.” He ticks off the shortcomings—he seems to have been keeping track. The punishing hours, the endless pitching, and all those dull, needy clients. What could be worse? Perhaps only a job at a sleepy mutual fund, a plain vanilla, as the hedge-fund managers sometimes call them.

By comparison, the hedge-fund manager’s life seems effortless. Gloriously client-free and with reasonable hours. “I got into this business,” says one hedge guy—is he stifling a yawn?—“so I could make money while I sleep.”
This is a MUST read article!

Will summarize soon :)

Gerry Som.

IB? HF? Sell side? Buy Side? Sell side to Buy side? Investment Banking Path to a Hedge Fund?

From the link: http://www.lifeonthebuyside.com/investment-banking-to-hedge-fund/

“My goal is to get into IB or HF.”

This is probably the most common career path desire of all the readers I see here and at M&I. I always smile when I read those sentences because the IB and HF career paths are really quite different.

Maybe they aren’t all that different since they are both in the field of finance, but they are different enough that lumping them together is amusing.

Time to choose. Which one will you choose: Investment Banking or Hedge Fund?

Still don’t have an answer? That’s OK. I just wanted to get your attention and point out what you are really saying when you say, “My goal is to get into IB or HF.”

“My goal is to make a lot of money.”

That’s what you are really saying. I get it, I really do. Investment bankers and hedge fund managers can make obscene amounts of money. Picking up the tab for bottle service for some of these guys is like the average person picking up a McDonald’s value meal.

They are society’s outliers and can do things in life that the average person only dreams about. The desire to make a lot of money is what brings some of the brightest minds in the world to finance.

Now that we’ve identified your true career goal (making money!), we need to spend some time discussing investment banking versus hedge funds so you can pick the career path that really is right for you. It’s not a life-or-death decision, but you need the right information to make an informed decision.

The way I see it, there are three different career path choices to choose from when evaluating IB vs. HF:

IB for Life
IB with Exit Opportunity to HF
HF for Life

Read the complete article from the link above!

Certified Hedge Fund Professional (CHP) Information

All About Investment Management

Will summarize soon. For now, this is a useful link: http://en.wikipedia.org/wiki/Investment_management

All About Hedge Funds

Will summarize this soon. For now, the following is a useful link: http://en.wikipedia.org/wiki/Hedge_fund

Remunaration / Compensation / Salary + Benefits of Successful Portfolio Managers / Hedge Fund Managers

From the link: http://en.wikipedia.org/wiki/Hedge_fund#Remuneration_of_portfolio_managers

Hedge fund management firms are usually owned by their portfolio managers, who are therefore entitled to any profits that the business makes. As management fees are intended to cover the firm's operating costs, performance fees (and any excess management fees) are generally distributed to the firm's owners as profits. Many managers also have large stakes in their own funds.

Top hedge fund managers earn what has been termed "extraordinary" amounts of money, with the highest-grossing getting up to $4 billion per year.Earnings at the top are far higher than in any other sector of the financial industry.

They wouldn't even consider getting out of bed for the $13m (£8m) Goldman Sachs' boss Lloyd Blankfein was paid last year," writes Richard Anderson, a BBC Business reporter. Collectively, the top 25 hedge fund managers regularly earn more than all 500 of the chief executives in the S&P 500.

Most hedge fund managers are remunerated much less, however, and the competitiveness of the industry, along with the structure of financial incentives, means that failure can lead to not getting paid. The BBC quotes an industry insider who says "a lot of managers are not making any money at all."

In 2011, the top manager earned $3,000m, the tenth earned $210m and the 30th earned $80m. In 2011, the average earnings for the 25 highest compensated hedge fund managers in the United States was $576 million.

According to Absolute Return + Alpha, in 2011 the mean total compensation for all hedge fund investment professionals was $690,786 and the median compensation was $312,329. The same figures for hedge fund CEOs were $1,037,151 and $600,000, and for chief investment officers were $1,039,974 and $300,000.

Of the 1,226 people on the Forbes World's Billionaires list for 2012, 36 of the financiers listed "derived significant chunks" of their wealth from hedge fund management. Among the richest 1,000 people in the United Kingdom, 54 were hedge fund managers, according to the Sunday Times Rich List for 2012. (Funds do not tend to report compensation. Published lists of the amounts earned by top managers use estimates based on factors such as the fees charged by their funds and the capital they are thought to have invested in them.)

What is "Alpha"? in the world of Hedge Funds...

Alpha, Alpha, Alpha! You will find this term everywhere in Fund Management. Following is the info from Wikipedia:

Alpha is a risk-adjusted measure of the so-called active return on an investment. It is the return in excess of the compensation for the risk borne, and thus commonly used to assess active managers' performances. Often, the return of a benchmark is subtracted in order to consider relative performance, which yields Jensen's alpha.

The alpha coefficient ( $\alpha_i$ ) is a parameter in the capital asset pricing model (CAPM). It is the intercept of the security characteristic line (SCL), that is, the coefficient of the constant in a market model regression.

$\mathrm{SCL} : R_{i,t} - R_{f} = \alpha_i + \beta_i\, ( R_{M,t} - R_{f} ) + \epsilon_{i,t} \frac{}{}$

It can be shown that in an efficient market, the expected value of the alpha coefficient is zero. Therefore the alpha coefficient indicates how an investment has performed after accounting for the risk it involved:

$\alpha_i < 0$ : the investment has earned too little for its risk (or, was too risky for the return)
$\alpha_i = 0$ : the investment has earned a return adequate for the risk taken
$\alpha_i > 0$ : the investment has a return in excess of the reward for the assumed risk

For instance, although a return of 20% may appear good, the investment can still have a negative alpha if it's involved in an excessively risky position.

Here are some useful links:

White Ferrari: How to afford one? Become a successful Fund Manager !

Here is a picture of the white Ferrari of Justin Bieber - a kid who is not even 20 years old yet. So how does a grown ass MBA, who can not sing and dance do well? Succeed in becoming a Hedge Fund Manager / Portfolio Manager and do a great job while at it. After that, it WILL become possible to afford nice cars...

Cheers,
Gerry.